Retirement Portfolio Diversification: Consumer Services Sector

by: Norman Tweed

In the comments section of a recent article on technology stocks, a question was asked about position size in reference to my allocation to (NYSE:FTR), a telecommunications stock. It appears that diversification by position size is an important concept in many developing retirement portfolios. To be clear about my portfolio, I use a position size of 2% of the entire value of the stock portfolio. If I have a double position, that would be 4% of the entire stock portfolio. When I have gone above a full position in a sector, I look at other stocks in that sector to diversify the sector. Therefore, in the telecommunications sector, which represents 13% of my entire portfolio, each stock within the sector represents a smaller number of positions. represents 1.5% of my entire portfolio, but only 4% of my telecommunications sector allocation.

In accordance with the above, I am reporting on three consumer services sector stocks this week. I have been asked to report on American Greetings (NYSE:AM-OLD) and I will also add Comcast (NASDAQ:CMCSA) and Cinemark (NYSE:CNK) for diversification purposes in the consumer services sector. Data from David Fish's CCC charts and Yahoo Finance.

  1. Comcast Corporation -- Consumer Services Sector. Comcast Corporation, together with its subsidiaries, provides entertainment, information, and communications products and services in the United States and internationally. Its Cable Communications segment provides video, high-speed Internet, and phone services to residential and business customers. As of June 30, 2011, its cable systems served approximately 22.5 million video customers, 17.5 million high-speed Internet customers, and 9.1 million phone customers. This dividend stock has 3 years of increasing dividends. The current yield is 1.7%*. The 3-year dividend growth rate is 21.5%, while last year's dividend growth rate was 18.9%. The current P/E is 19.26. The projected earnings per share growth rate for next year is 17.11%, while for the next 5-years it is 20.5%. *It should be noted that the yield does not meet my 4% minimum for initial investment. I will continue to drip this stock. A younger investor could establish a position for the capital appreciation. The yield + 3-year dividend growth rate is 23.2 which exceeds the current P/E of 19.26. CMCSA is in a developing market of communications, including the switch from over the air television to streaming video.
  2. American Greetings -- Consumer Services Sector. American Greetings Corporation, together with its subsidiaries, engages in the design, manufacture, and sale of greeting cards and other social expression products worldwide. It offers social expression products, including greeting cards, gift wrap, party goods, giftware, and stationery, as well as custom display fixtures; and DesignWare party goods, Plus Mark gift wrap and boxed cards, and AGI In-Store display fixtures. The company distributes social expression products comprising electronic greetings, physical products incorporating consumer photos, and a range of graphics and digital services and products through various electronic channels, including Web sites, Internet portals, instant messaging services, and electronic mobile devices; and creates and licenses its intellectual properties, such as the Care Bears and Strawberry Shortcake characters. This Dividend Challenger has 8 years of increasing dividends. The current yield is 4%. The 5-year dividend growth rate is 13%, while last year's dividend growth rate was 9.3%. The current P/E is 7.45. The projected earnings per share growth rate for next year is 5%, while for the next 5-years it is 14%. American Greetings suffered severe price decline in 2011 ($24.84 to $12.47). Since then, it has recovered to $14.85 on February 2, 2012. The current P/E is well covered by the yield + 5-year dividend growth rate. The CEO says the company is undervalued and has initiated a new share repurchase authorization. The company is 105 years old and physical assets including real estate are undervalued. The real question for this value company is how well they will adapt to modern social expression products. Another thing they have going for them is the beginning of the new business cycle. The consumer services sector is the first to react to the upturn in consumer spending. See here for further explanation.

  3. Cinemark Holdings -- Consumer Services Sector. Cinemark Holdings, Inc. and its subsidiaries engage in the motion picture exhibition business. As of September 30, 2011, it operated 448 theatres and 5,096 screens in the United States and Latin America. The company is headquartered in Plano, Texas. This stock has an erratic dividend increase record. In the August quarter of 2007, the dividend was $.13. It was raised to $.18 in the November quarter of that year and remained at that level until November 2010, when it was raised to it's current level of $.21. The dividend was just declared at the same level of $.21 February 3, 2012. For the period 2007-2012 the 5-year dividend growth rate would be 10%. The current yield is 4%. The current P/E is 15.69. The projected earnings per share growth rate for next year is 17.56%, while for the next 5 years it is projected to be 56.6%. is a recession-resistant company, due to it's global growth. For the younger investor, this stock could provide a strong total return in the long run.

A chart comparing these three stocks over the last five years shows the cyclical nature of all three stocks, when compared to SPY (S&P500 Index ETF).

(Click to enlarge)

As can be seen from this chart, took quite a beating in the Great Recession, while the other two consumer cyclical stocks followed the ((NYSEARCA:SPY)) down 60%. I think this has to do with the perception of as a more traditional paper cards company. I believe the strong showing of is due to emerging market growth. Restructuring of these companies will be the key to their performance in the developing digital age.

We will now look at the dividend income stream for these three stocks. With equal positions of $10k each purchased 1 year ago, these stocks produced a quarterly income stream as shown in the following table:


Quarterly Dividend Rate

Number of Shares

Quarterly Income













In order to investigate the growth of the portfolio, due to dividend reinvestment, I will once again create a spreadsheet for only the last year (January 2011-January 2012).

Stock Date of reinvest Div Rate # Shares Dividend Drip price # Shares pur Total Value
Totals 455.56 $195.38 8.53
CMCSA 12/30/11 $0.11 453.40 $51.23 $23.71 2.16 $10,801.41
10/03/11 $0.11 450.90 $50.95 $20.36 2.50 $9,231.28
07/01/11 $0.11 448.93 $50.73 $25.73 1.97 $11,601.66
01/03/11 $0.10 447.03 $42.47 $22.37 1.90 $10,042.53
Totals 430.08 $252.25 13.93
AM 12/22/11 $0.15 425.32 $63.80 $13.39 4.76 $5,758.78
10/05/11 $0.15 421.49 $63.22 $16.51 3.83 $7,021.97
07/11/11 $0.15 418.74 $62.81 $22.90 2.74 $9,652.04
04/07/11 $0.15 416.15 $62.42 $24.03 2.60 $10,062.41
Totals 540.71 $442.43 22.31
CNK 11/16/11 $0.21 535.00 $112.35 $19.68 5.71 $10,641.08
08/15/11 $0.21 529.37 $111.17 $19.75 5.63 $10,566.18
06/02/11 $0.21 524.04 $110.05 $20.67 5.32 $10,942.03
03/02/11 $0.21 518.40 $108.86 $19.29 5.64 $10,108.80

At this point, I will add a table to illustrate the growth of dividends received and the steadily growing income over time.


























In addition, I will illustrate the total value of this portfolio by quarter in the following graph:

(Click to enlarge)

It can be seen from the table that the income for the year was $890.06. On an investment of $30k, this was 2.96% yield. It can also be seen from the Total Portfolio Value chart that the ending portfolio value was $27,201.27. This computed out to a loss of $2798.73 or -9.3%. This loss was due to AM losing ½ of it's value during the year. This illustrates the value of diversification within a sector.

When compared to , these consumer services stocks performed comparably for the 5-year period. Since the dividends were reinvested, the 2.96% yield went into the total return, providing extra shares when the stock price was down, especially with AM.

Conclusion: In the current secular bear market, sector rotation causes various sectors to be accentuated when their time in the cycle arrives. Consumer services are the first sector to rise during the new business cycle, especially during a restructuring period like we find ourselves in today. New ways of performing services, like video and electronic greetings will be tried and some will be highly successful, just look at Face Book for example.

It is important to diversify ones portfolio during these times of restructuring, due to the volatility of the markets. Good buys can be had when a stock has been severely punished, like AM and the P/E is low, while the dividend yield meets my 4% minimum. However, don't bet the farm on one of these great finds. Moderation in investing provides safety of capital, especially during bear markets. It is critical that each investor does their own due diligence before making any investment.

Disclosure: I am long CMCSA, FTR.